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What Is Total Expense Ratio (TER) in Mutual Funds
In summary
Total Expense Ratio (TER) tells you how much a mutual fund scheme costs to run. You do not normally pay TER separately. The expenses are charged to the scheme and are reflected in its Net Asset Value (NAV).
- TER reduces the return investors finally receive.
- Direct plans usually have lower expenses.
- Regular plans include distribution-related expenses.
- Equity BER starts at a 2.10% slab.
- Non-equity BER starts at a 1.85% slab.
- TER should be compared within similar schemes.
- Lower cost does not guarantee better returns.
Under SEBI's 2026 framework, TER includes the Base Expense Ratio (BER) along with permitted brokerage, transaction costs, and statutory levies. The actual TER can differ across schemes and plans.
What is the Total Expense Ratio?
The Total Expense Ratio is the ratio of all permitted expenses charged to investors through a mutual fund scheme to the scheme's assets.
In simple words, TER tells you the cost of running the mutual fund.
For example, suppose a scheme has an expense ratio of 1%. This does not mean the AMC sends you a bill asking for 1% separately.
Instead, the scheme's expenses are adjusted while calculating its Net Asset Value (NAV). As a result, the NAV you see already reflects the expenses charged to the scheme.
This is why TER affects the return you finally receive.
What is the difference between BER and TER?
From 2026, it is important to understand the difference between Base Expense Ratio (BER) and Total Expense Ratio (TER).
BER covers the main expenses involved in running the mutual fund scheme. These can include investment management, administration, registrar services, audit costs, investor communication, and distribution-related expenses where applicable.
TER is broader.
Under SEBI's 2026 framework:
TER = BER + permitted brokerage + transaction costs + statutory levies
Statutory levies can include applicable government and regulatory charges. SEBI introduced this clearer structure under the Mutual Funds Regulations, 2026.
For investors, the simple point is that BER is the base cost limit, while TER represents the wider set of expenses charged through the scheme.
What costs are included in a mutual fund's expenses?
A mutual fund has several costs involved in operating the scheme. Common costs can include:
- Investment management fee: Cost of managing the scheme's investments.
- Registrar expenses: Cost of maintaining investor and transaction records.
- Custodian expenses: Cost related to safekeeping scheme assets.
- Audit costs: Expenses for checking the scheme's accounts.
- Investor communication: Cost of statements and other required communication.
- Distribution costs: Applicable to regular plans where distributor commissions are involved.
- Brokerage: Certain costs of buying and selling securities.
- Transaction costs: Regulatory or exchange-related costs on trades.
- Statutory levies: Applicable taxes and government charges.
Not every expense can simply be passed on to investors. SEBI sets rules on which expenses can be charged and the maximum permitted limits.
How is the Total Expense Ratio calculated?
A simple way to understand the expense ratio calculation is:
Expense ratio = Total scheme expenses ÷ Average scheme assets × 100
Suppose a mutual fund has average assets of Rs. 500 crore and eligible annual expenses of Rs. 5 crore.
The simple expense ratio calculation would be:
Rs. 5 crore ÷ Rs. 500 crore × 100 = 1%
This means expenses equal 1% of the fund's average assets in this simplified example.
In practice, the actual calculation and charging of expenses follow SEBI rules and daily net asset values. The formula is mainly useful for understanding what the percentage represents.
How does TER affect your mutual fund returns?
TER reduces the return that remains for investors after scheme expenses.
Suppose a fund's investments generate a gross return of around 10% during a year and its expenses are around 1%.
The investor's return would be lower than the gross 10% because expenses are charged to the scheme.
You should not simply assume that:
10% gross return − 1% TER = exactly 9% investor return
This is only a rough illustration because expenses are reflected in NAV over time, and the value of the portfolio changes throughout the year.
The important point is simple: when two otherwise identical funds earn the same gross return, the one with lower expenses would generally leave more return for investors.
However, funds are rarely identical. Cost should therefore be considered along with risk, portfolio, investment objective, and performance.
What are the current SEBI expense limits?
SEBI sets maximum Base Expense Ratio (BER) limits based on the size and type of the scheme.
For open-ended schemes other than specified categories such as index funds, ETFs, and Fund of Funds, the current 2026 BER slabs include:
| AUM slab | Equity-oriented BER | Other schemes BER |
| First Rs. 500 crore | 2.10% | 1.85% |
| Next Rs. 250 crore | 1.90% | 1.65% |
| Next Rs. 1,250 crore | 1.60% | 1.40% |
| Next Rs. 3,000 crore | 1.50% | 1.25% |
| Next Rs. 5,000 crore | 1.40% | 1.15% |
| Rs. 10,000–50,000 crore | Falls by 0.05% for each Rs. 5,000 crore slab | Falls by 0.05% for each Rs. 5,000 crore slab |
| Above Rs. 50,000 crore | 0.95% | 0.70% |
These are slab-based limits, not one single percentage applied to the entire AUM.
For example, an equity scheme with more than Rs. 500 crore does not suddenly charge the next BER rate on all its assets. Different portions of AUM fall into different slabs. SEBI's 2026 rules also set a 0.90% BER ceiling for index funds and ETFs.
Actual scheme expenses can be lower than these maximum limits.
What is a good Total Expense Ratio?
There is no single TER percentage that is “good” for every mutual fund.
A useful TER is one that is competitive compared with similar schemes. For example, compare:
- An equity fund with other similar equity funds
- An index fund with similar index funds
- A debt fund with similar debt funds
- Direct plans with other direct plans
Comparing a regular actively managed equity fund with a direct index fund may not tell you much because their management styles and cost structures are different.
A lower TER can be an advantage, but the cheapest fund is not automatically the best fund.
Also consider the scheme's objective, portfolio, risk, consistency, tracking difference for passive funds, and suitability for your goal.
Can a mutual fund's TER change?
Yes. A scheme's expense ratio can change.
Expenses may change because of factors such as:
- Changes in scheme AUM
- Changes in operating costs
- Changes in distribution expenses
- Regulatory changes
- Changes made by the AMC within permitted limits
SEBI requires mutual funds to disclose TER on a daily basis. Current expense information is available through fund-house disclosures and AMFI. Changes in the base TER must also be communicated according to the prescribed disclosure rules.
Therefore, the TER you see when you first invest may not remain exactly the same throughout your holding period.
Why should you not choose a fund only by TER?
TER tells you about cost, not whether a mutual fund will perform well.
A fund with a TER of 0.50% can still lose money if its investments fall in value. A fund with a higher TER may sometimes deliver a higher net return, although that is never
guaranteed.
When comparing mutual fund schemes, consider:
- Your investment goal
- Scheme category
- Portfolio
- Risk level
- Investment strategy
- TER
- Consistency of performance
- Your investment horizon
For passive funds, tracking difference can also be important because it shows how closely the fund has followed its benchmark.
TER is therefore one part of the decision, not the whole decision.
Conclusion
Total Expense Ratio helps you understand how mutual fund expenses affect your investment. These costs are charged through the scheme and are already reflected in its NAV, so you do not normally pay TER separately.
Under the 2026 SEBI framework, TER includes BER along with permitted brokerage, transaction costs, and statutory levies. Compare expenses only between similar schemes and plan types. A lower TER can help returns when everything else is equal, but cost alone should never decide which mutual fund you choose.
Last reviewed: October, 2026
Mutual funds are subject to market risk. Please read the scheme-related documents carefully before investing.
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Frequently Asked Questions
Understanding TER
Calculating TER
What is a good total expense ratio?
There is no single TER that is good for every mutual fund. Compare the TER with similar schemes in the same category and with the same plan type. Passive funds generally have lower expenses than actively managed funds. A lower TER can help when other factors are similar, but you should also check the scheme's risk, objective, portfolio, and performance.
What is the purpose of TER?
TER shows how much of a mutual fund scheme's assets are used to meet permitted expenses. It helps investors understand the cost of owning a fund and compare similar schemes. Because these expenses are reflected in NAV, TER directly affects the return investors finally receive. However, TER measures cost and does not tell you whether a fund will generate good returns.
How do you calculate the total expense ratio?
A simple formula is: Expense ratio = Total scheme expenses ÷ Average scheme assets × 100. For example, if eligible annual expenses are Rs. 5 crore and average assets are Rs. 500 crore, the ratio is 1%. Actual scheme expenses are calculated and charged according to SEBI's detailed rules and daily net assets.
What is an expense ratio in mutual fund?
An expense ratio is the cost of running a mutual fund expressed as a percentage of its assets. Investors do not normally pay this amount separately. The scheme charges permitted expenses from its assets, and these costs are reflected in the NAV. Under SEBI's 2026 framework, investors may also see the term Base Expense Ratio, or BER, alongside TER.
What is an example of a total expense ratio?
Suppose a mutual fund has an expense ratio of 1% and you invest Rs. 1 lakh. This does not mean Rs. 1,000 is separately taken from your bank account. Expenses are charged to the fund and reflected in its NAV over time. If two otherwise identical funds earn the same gross return, the fund with lower expenses would generally leave a higher net return for investors.
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